BLOG VIEW: Yes, the overall REO market has improved – but no, we are not in the clear yet.
According to RealtyTrac's Residential and Foreclosure Sales Report, distressed sales (REO) and short sales were 13.6% of all sales in July. While this saturation is down from 15% in July 2013, REO is still an issue, and the longer these properties sit on the market the more expensive it is for lenders to maintain them.
While bank-owned inventory remains a challenge for the industry, asset managers and lenders should focus on the following three key areas to help accelerate the resale of these properties and enhance efficiencies:
It starts with a well-managed report
Asset managers and lenders must ensure they are continuously monitoring and maintaining their reports in order to stay aware of the status of REO properties. There is a pre-marketing status, an eviction status, a listing status, under contract status, hold/redemption status, etc. If the report is managed correctly, the disposition will come more quickly because the lender can see the problem at hand and address it immediately.
If a lender has more statuses in the pre-marketing and/or eviction stage, it should place more emphasis on these properties to try to move them along to the next status. Asset managers want to see the majority of their statuses in the listing and/or under contract stage. These status, aging, exception and control reports are great tools for asset managers and lenders to identify their goals, establish target dates and track the statuses so that they can reach those goals.
Aim to sell the property while it's in eviction
A more unconventional tip for lenders and asset managers to try is to sell the property while it is still in the eviction stage. Not many lenders or asset management companies do this or even think about it, but if they did, it would be extremely beneficial.
The eviction phase is long and can take six months to a year to complete. Many factors can further delay the process, such as when the occupant declares bankruptcy. Why not skip that phase altogether if it's possible to find willing buyers who don't mind purchasing a property that is going through eviction? These prospective buyers can make a special deal with the occupant – for instance, giving them within a year to move out, offering a nominal fee to inspect the property, or work out their own cash for keys plan.
Oftentimes, the occupant is more willing to negotiate with the future buyer of the property as opposed to working with the investor or bank. Of course, the new owner has to start the eviction process over again, but by opening that up as an option to the market, there will be interested parties willing to take the opportunity. Selling a property while it's in eviction reduces the holding time for the asset management company, and it's a quicker way of disposing the property.
Creative marketing goes a long way
Some properties are harder to sell than others. Asset managers must think outside the box and provide more creative ideas on how to sell these difficult properties. For instance, rather than spending time and money on winterization, instead give that $500 to $1,000 to the buyer's agent for a closing before the winter season even begins. Or, say the property is in a hurricane state like Florida; create incentives to close before June 1.
In rural areas, why not market those properties to potential bed-and-breakfast establishments or church retreat centers that thrive in more remote areas? Reach out to nonprofit organizations to see if they will demolish the home to build a garden for the community or contact local employers and inquire about hosting a ‘lunch and learn’ event to attract potential buyers.
It is so important to market smarter by taking into consideration the location, the seller's best interests and the potential buyer's needs. Unfortunately, some advisors have been in the business so long that their marketing approaches are stagnant and require little thought; they simply list the property on the market and wait to see what happens. These properties will not sell themselves but require more creative approaches.
In order to ensure your agents are staying on top of the property, consider doing a ‘mystery call’ where someone calls the agent as a potential buyer to see what the agent says about the property and find out whether or not he markets the property correctly. If the agent says things comparable to, ‘Oh, I have a better property I can show you,’ you know that agent does not have the seller's best interests in mind. Mystery calls are also good techniques for you to gauge the agent's responsiveness and accessibility.
Finally, know who you are doing business with: The quality of your support services and vendor partners will greatly improve the speed of the REO sale process. Make sure they understand the aforementioned secrets and employ them in their routine.
Ann Song is vice president of asset management at LRES, a national provider of commercial and residential valuations and asset management for the mortgage, banking, credit union and real estate industries.